We’re Not Broke — We’ve Been Robbed

With the Friday the 13th December deadline for a federal budget deal, the cries of “we’re broke,” and “we can’t afford to keep spending,” are ringing again. But we’re not broke and acting like we are is making us poorer.

Attack of the Budget Slashers, an OtherWords cartoon by Khalil Bendib

One of the biggest common misunderstandings is that governments are like households, which need to tighten their spending when times are tough. Actually, governments and households work in opposite ways.

Governments can and should spend more when times are tough. Government spending makes up for lack of spending by families and businesses, and it helps get the economy moving by getting people back to work, putting money in their pockets, and contracting with businesses.

If we needed a reminder of that, the recent government shutdown gave us one. Journalists reported story after story about how business was down, as federal workers were laid off and national parks closed. The estimates are that even though the shut down only lasted 16 days, it cost the economy $24 billion.

We need government spending and investment to get the entire economy moving forward. When families are back at work with decent wages, government tax revenues will rise and spending on social supports will fall. That’s when government can reduce spending without slowing down the economy.

We’ve also cut all the wrong things: spending that puts money in people’s pockets today and investments in our economic future. We’ve cut spending on education, unemployment insurance, environmental protection, and scientific research. Our public investment, which includes annual government programs and spending on roads, bridges, transit, research, and development is actually the lowest it’s been as a share of the economy in 60 years.

What if we’d taken a different course during the recession? How about rather than cutting spending after an initial stimulus, which avoided a second great depression by saving three million jobs, the government had kept at it?

History shows that if we have continued the levels of spending normally done after recessions, we would have spent some $800 billion more than we did, and the overall economy (and not just the stock market) would be back to the same level today that it was before the recession hit.

In short, the argument that the government must live within its means to protect our children’s future is backwards. Averting deficit spending now means starving our children’s present and their future. More parents will have to struggle to get by, fewer good jobs will be created, education will suffer, and today’s college students will stumble into their careers saddled with huge debt loads.

And our infrastructure will keep crumbling and research will dwindle, making it harder for our businesses to compete in the global marketplace.

There are ways we can reduce the deficit without slowing down the economy very much, if at all. That is by looking at the other truth about the cry that “we’re broke.” In fact, we have been robbed.

When Uncle Sam gives big corporations tax breaks to move jobs overseas, we’ve been robbed. When Washington taxes billionaires at a lower rate than their secretaries, we’ve been robbed.

To get the country moving again, Congress needs to reverse direction and increase spending on vital services and investment.

That means reversing the budget cuts on domestic spending already in place and stopping any more sequestration cuts on vital services for our families. And raising taxes on the wealthy and huge corporations, which have been gaming the system at our expense.

Instead of obsessing about the “need” to cut government spending, our leaders should be figuring out how best to stimulate the economy to provide both a better today and future for our children.

Richard Kirsch is a senior fellow at the Roosevelt Institute and the author of Fighting for Our Health: The Epic Battle to Make Health Care a Right in the United States. He’s also a senior adviser to USAction. USAction.orgDistributed via OtherWords. OtherWords.org

The 16 day shutdown cost what we have spent as taxpayers during the last ten years for the private pensions of the private military defense contractors who have effectively now use our taxes to subsidize themselves and to increase contributions to our own politicians.

bluepilgrim

Search on ‘modern monetary theory’ and see neweconomicperspecives.org for full explanations of sovereign fiat money works.

BobFromDistrict9

Aside from the fact that you didn’t really say anything, there is the fact that all money is fiat money.

If gold is traded, that’s barter, not money. When this country was on the gold standard, and gold was set at $35/oz, that was fiat money. Don’t believe it? After Nixon took us off the gold standard the price of gold soon hit $300/oz. IOW, the real value of gold was 10 times higher than the fiat standard. Since then it has fluctuated mostly between $300 and $600, with excursions outside that framework,

For the most part, gold has been about the worst investment you can make, and a playground for speculators and snake oil salesmen.

If gold had real inherent value it would have been selling for $6,000/oz years ago.

BobFromDistrict9

Your link comes up dead.

Won Word

That’s because the Illuminati/Secret Banking Cartel got to him first.

BobFromDistrict9

Thanks for the explanation. It does make sense, in a Three Stooges logic system.

Oh yeah, reread what he said, you hit the nail on the head. That is Three Stooges logic.
With apologies to the Three Stooges.

Mitchyz

Keynesian economic theory does not work past the short term. The printed money is only worth something to the hands it touches first. The lower and middle classes are worse off by what you are proposing due to inflation and decreased purchasing power.

Kevin Schmidt

WRONG! Keynesian Fiscal Stimulus was responsible for bringing the US out of the Republican inspired Great Depression, and was responsible for the tremendous growth during the go-go years of the 50s, 60s and 70s.
You are also wrong about printed money only being worth something to the hands it touches first. Apparently, you have never heard of the velocity of money, nor have you had even a basic course in Economics.

BobFromDistrict9

Don’t forget, despite republican protestations, Keynesian economics was responsible for what growth and recovery this country experienced under Reagan and GW Bush. Just because it was military spending doesn’t mean it won’t qualify as Keynesian.

It wasn’t very good Keynesian, but that’s why the recoveries were so poor.

BobFromDistrict9

Keynesian economics explain how to deal with fiscal crises, specifically recessions. Fiscal crises that last for the long term are called disasters.
Keynesianism calls for increased spending during a recession, reduced spending when the recession is over. How is that a problem for you?

Won Word

Another Trickle-down and Laffer Curve acolyte, eh?

Good for you for sticking to your guns in the face of insurmountable evidence that you’re utterly and completely misguided. I salute you.

The national debt is really not that difficult to deal with, you know. Look at history. Yes, there has not been one single year since this country was founded that it was debt free, but there were multiple times where the debt was drastically reduced.

In researching that I looked for a reduction of 40%-50% or more in the pre-Civil War period, and after the Civil War I looked at debt as a percentage of GNP as well as dollar reduction. Before 1890 I didn’t find stats on the GNP

readily available. I’m not getting paid for this after all. Oh, and they used GNP rather than GDP then. Not enough difference to matter for this purpose.

From 1790 till 1930 I find 5 times when the dollar amount of the debt went down to those specs, 1803-1811, 1815-1835, 1838-1839, 1843-1847, 1851-1857, 1866-1893, 1919-1930.

From 1890 to 1930 twice it went down enough as percent of GNP I feel confident in calling it on the road to, if not paying off the debt, then making it trivial. Twice, 1835 and 1915, I call it so close to paying off the debt it could have been done.

The actual debt went from $127 million in 1815 to $38 thousand in 1834. I call that on the road to paying it off, but that was the dollar amount low point. By 1915 the debt was at aprox 2.5% of GNP. IOW, by spending 1/2 of one percent of GNP every year for 5 years we could have paid it off. In 1930 the debt debt was at 16% of GNP, again, awfully close to payoff range, in my opinion.

So, just how did that happen? Well, graphing federal spending it became immediately clear. The debt was brought down drastically by cutting federal spending…….. on the military.

You weren’t expecting that, were you?

Yes, it was cuts in military spending that brought the debt down. Every time in the pre-1930s US a major reduction in debt was during a period of low military spending. So, it appears to be simple, just cut military spending and you cut the debt.

Note, that does not mean low social welfare spending. (Republicans call everything not military “social welfare”.) Much of that time social welfare spending was higher than military spending, and it went up while military spending was down. Even when military spending went up, social welfare spending sometimes went up more, yet the debt stayed down. When the debt did jump it followed military spending jumps.

However, that leaves the question, why, if they so drastically cut the debt, didn’t they continue on that route to pay off the debt? Well, let’s look. The 1835 and 39 declines seem to have ended with recessions so bad as to qualify as depressions, the worst this country saw before the Civil War. The 1840s into the 1850s showcased three major recessions, plus a war. The Mexican-American war may not be on the top of your list, but spending sure shot up.

As to the others, oh yeah, when the debt fell by so much, then it shot up again, that was when military spending jumped drastically.

Now why was that? I’ll just speculate. When you drastically cut military spending, you drastically reduce your military. Now, nice as we like to think people are, there are always some who will look around, find you are weak, and decide it’s a good time to take what you have. Or maybe they just want to knock you down a peg. So, when the debt drops drastically, we have a war to bring it back up.

That is about how it goes. Major spending increases are actually major military spending increases during that time frame. So, do we cut the military, drastically reduce the budget, then get a war, or do we try to think it through just a bit better?

Notice I focused on the period from 1790, the first year I could find these numbers for, until 1930. I chose that time frame because, from 1930 on everything changed. Between 1919 and 1930 the debt dropped, as I said, to 16% of GDP. From 1920 to 1930 this country had 11 consecutive balanced budgets, the longest string of the 20th century. Then came the Great Depression. Seems balanced budgets of the 20th century are consistently followed by recessions. The longest strings seem to have the worst recessions.

The national debt went up to 50% of GNP by 1940, at which time GNP was back to where it was in 1930. Don’t even start to think that was all because of increased social welfare spending. Remember, that $16 Billion in debt was 16% of GNP when the GNP was $100 billion. In the first few years of the depression the GNP dropped 40%. When that $100 billion dropped 40% that 16% turned into aprox 27% of GNP. All that before borrowing one penny more. Ten years of depression just under doubled the debt to GNP ratio. After that World War II kept it climbing, so fast and skyrocketed the economy so much that by comparison the depression was trivial. Yes, military spending did it again.

Since World War II we have not had a year of lower military spending. Even the Vietnam war only increased military spending a relatively small percentage of GDP.

Before World War II we could, and were, attacked by foreign foes, but it was difficult for them to launch and supply any military effort over that distance. In World War II and after we learned, the oceans no longer protect us. We are vulnerable to attack, and with today’s weapons, destruction.

That is why paying off the debt is not likely to happen in the foreseeable future.

BobFromDistrict9

Addendum:

Please note that figures before WWII may differ from post WWII
figures, and the older they get the more they may differ. In
earlier years the numbers were far less rigorously collected,
that and communication difficulties made them much less
reliable.

Throughout this I used current dollars, not constant, or
inflation adjusted, numbers. Since I was looking at the dollar
amount of the debt so inflation adjustment was not applied. That
plus, the record difficulties make inflation adjustment for very
old data difficult. That and I broke up my research into
pre-Civil War, pre-WWI, and Pre-WWII. The scale of the numbers jump drastically between those periods.

I did not, in this case, look much at post WWII because there has been no time since WWII that the debt went down significantly, and no time that military spending went down very much or for very long. Which makes it a different situation.

BobFromDistrict9

Addendum: In this research I looked at the number and dates of recessions, but failed to look at the depth. Pre-WWII recessions were very common, and they were typically very severe. The worst post WWII recession was in 1945, which caused a significant drop in GDP, but very little unemployment, and was short. It was the post war wind down.

Other than that one recession, the mildest pre-WWII recession I found, was the 1845 recession, measured in decline of the economy as measured at the time. That recession was worse than the worst recession after 1946. Though you do have to remember the unreliability of the older numbers.

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